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The Product Safety Report©

Summer, 2007
Law Offices of David H. Baker LLC 
www.dhbakerlaw.com 
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Increased Scrutiny of Imports of Consumer Products from China
In an amazing twist of fate, over the course of the past four weeks, there has been a huge reaction against imports from China. First, there was the Thomas the Tank train recall for excessively high levels of lead in the surface coating on the train cars. Then the shoddy automobile tires from the distributor in New Jersey that was filing for bankruptcy and could not afford to conduct a NHTSA approved recall. Then an announcement that seafood and beef imported from China were contaminated and increased FDA scrutiny of imports of both products. Then a succession of other consumer product recalls at the CPSC for various causes. One day last week, the CPSC released five recalls at once, all involving imports from China.

The reaction to these problem imports has been fast and furious. Earlier in the month, Senator Charles Schumer (D-NY) suggested that an Import Czar be appointed to oversee imports from China. Last week, President Bush established an Interagency Working Group to review imports from China, including the Chairman of the CPSC, the Administrator of the Food and Drug Administration and the Secretary of the Department of Homeland Security, among others. The Working Group met for the first time on July 18th. Last week, Acting CPSC Chairman Nancy Nord also released draft legislation tightening regulation on imports including permitting the CPSC to rely on voluntary consensus standards (such as ASTM and ANSI standards) and enforce the voluntary standards just like CPSC mandatory standards. The Nord package known as the Product Recall, Information and Modernization Act Act (“PRISM Act”), may be formally introduced by a member of Congress later this week. Other legislation dealing with specific products has already been introduced by several members in the House (H.R. 814, H.R. 1699, H.R. 1721 and H.R. 2474).

There have been more hearings on product safety in this Congress, than in the past six years of the Bush Administration combined. On July 18th, the Senate Commerce Committee held a meeting on the safety of Chinese imports.

Last week also, Consumers Union (“CU”) Director of Product Safety, Don Mays, introduced an eight party strategy to improve the safety of imports. The plan included concepts such as increasing pre-shipment inspections in China and developing third party certification programs. The Consumer Federation of America supported the CU strategy.

There have been lead articles on the problem with imported consumer products from China in the Chicago Tribune (a one week series and various front page follow up stories), the Wall Street Journal, and last week, the pedestrian USA Today picked up the story line. Chairman Nord actually responded to the Chicago Tribune articles in a quasi editorial on July 18th.

This is more attention to product safety than I have seen in my prior 28 years of practice before the CPSC. It is indeed ironic that the agency is getting all of this attention despite the fact that (a) that President Bush still has not nominated a third Commissioner for the CPSC, (b) or named a nominee for Chairman (he could name Nord as Chair and appoint a third Commissioner) and (c) therefore, the CPSC lacks a quorum and can not officially act.

As reported in our March Special Report, focusing on the now failed Michael Baroody nomination, Senator Mark Pryor (D-AR) has a provision pending before the Congress known as the Short Quorum Act that would restore the quorum. That provision is now pending before the Conference Committee on the 9/11 legislation. The Short Quorum Act would restore the quorum to the CPSC upon enactment, and continue the quorum until a new Chairman is confirmed by the Senate. It is expected that the 9/11 legislation will emerge from Conference in the next few weeks and be presented to the President for signature. So it is possible that the quorum will be restored by the early Fall.

The Chinese response to this crisis was to hire Ogilvy Public Relations Worldwide and Patton Boggs and Blow to flack for them. In an “only in China” story, the Chinese Government also tried and executed the head of the State Food and Drug Safety Administration in a period of about six weeks. No better way to get results then to send someone to death by lethal injection (the preferred method currently employed by the Chinese Government, which regularly executes its citizens.)

The question in my mind is whether this is a long term story, or the normal Washington media frenzy, followed by no action. Sadly, I expect that it is the later. The U.S. economy is so dependent upon imports from China that even if some of them fail, or are contaminated, we can’t make all of the goods here anymore. And we certainly can not make them at the cost that they are made in China. I believe that ultimately very little will come of the call for an Import Czar, or the Interagency Working Group (working groups are huge bureaucracies that take years to get anything done), or even the proposed legislation. My best estimate is that a few provisions may get enacted this year. And, hopefully, a quorum will be restored at the CPSC.

If the quorum is restored, then the CPSC will have the ability to immediately deal with some of the pending rulemakings and other enforcement activity before the agency.

Fisher-Price Agrees to Pay Civil Penalty of $975,000 for Late Reporting
Although there have been very few civil penalty settlements since Acting Chairman Nord took the reins of the agency in July 2006, on March 1, 2007, the CPSC announced a $975,000 settlement agreement with Fisher-Price, Inc. of East Aurora, New York, for failure to timely report choking and aspiration hazards associated with its Little People Animal Sounds Farm. The product was put in the market place beginning in June 2002. By February 2003, Fisher-Price had received two reports of the product being a potential choking hazard and one report of a child inhaling a part into his lung. The company then reported in March 2003. At the time they finally reported, they had 33 reports of parts coming loose from the Little People product.

In my opinion, the large penalty is primarily due to the fact that the affected population is young children, which the Commission is extremely concerned about. Moreover, choking hazards generally are a major concern of the agency. Finally, I assume that Fisher-Price is a large and profitable company. Thus, the fact pattern was the “Perfect Storm” scenario for a large penalty.

Ironically, in my judgment, if Fisher-Price had reported in February, it might have avoided a penalty. Clearly, the trigger to report on children’s product is a very fast one. If you sell toys and you get a single bad incident, you probably should report immediately. Otherwise, you are likely to pay a penalty in the neighborhood of seven figures.

The trigger to report probably is not as fast when dealing with the normal population, or a lesser hazard.

It should also be highlighted that if either the PRISM legislative package is enacted, which raises the cap on civil penalties from $1.825 million to $10 million (Section 2 of PRISM Act), or the separate House bill is enacted, which raises the cap to $20 million (H.R. 2474), companies will be looking at even larger civil penalties in the future.

State Enforcement of Product Safety Standards
In a little noticed trend, some states have begun to independently enforce state consumer product type laws. On November 27, 2006, the Wisconsin Department of Agriculture, Trade and Consumer Protection announced that J.C. Penney had agreed to pay a penalty of $375,000 in settlement of a claim that it sold children’s clothes with illegal drawstrings. According to Janet Jenkins, Administrator of Trade and Consumer Protection in the Wisconsin agency, Wisconsin was the first state to make children”s drawstring illegal. So here you have the unique circumstance of a state enforcing what is otherwise a voluntary standard, and imposing a substantial fine on a company.

Other states that have active consumer product programs include Illinois, Connecticut, Massachusetts and New York.

We will continue to report on any other state settlements or penalties that we come across.

Michael Baroody Withdraws Name for Consideration as Chairman of CPSC
Finally, in a story that is no longer news, on May 23, 2007, Michael Baroody, of the National Association of Manufacturers (“NAM”), withdrew his name from consideration for Chairman of the Consumer Product Safety Commission. Baroody was so aligned with industry positions that his nomination was tenable at best, from the outset. Then somehow, probably in violation of privacy laws and/or Congressional procedures, someone released a letter from NAM detailing a $150,000 severance payment from NAM to Baroody, that would be paid as he left the organization. Several Senators, including Senate Subcommittee Chairman, Mark Pryor (D-AR), raised serious questions about the nomination in the media. Baroody then quickly withdrew his name from consideration.

In hindsight, this was another terrible Bush Administration nomination. The Office of White House Personnel seems oblivious to public opinion, or conflict of interest. Why they would select someone from the largest industry trade association, which regularly takes positions before the CPSC, as the nominee, is hard to figure. There are many qualified candidates who would not be viewed as industry representatives. Moreover, to do so, after another disastrous nomination in 2001, when Mary Sheila Gall, was passed over for Chairman, is also hard to decipher.

As noted in the opening article, the position is still open. I suspect that it will take a Bush Administration preoccupied with Iraq, Iran and Afghanistan, several more months to name another nominee.